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Shouldn't the private sector be solving the health care problem?

Shouldn't the private sector be solving the health care problem? The nation's rising health care costs and the effect on the private sector is a national problem that certainly justifies a sense of urgency. It's a problem that, if left unresolved, could lead to fiscal disaster for many businesses in this country. How we in Corporate America resolve the issues surrounding health care now will have a very significant impact on our position in the 21st century.

There is ample evidence, both numerical and anecdotal, that employers indeed do have a crisis on their hands:

* Last year, AT&T paid roughly $1 billion in health costs for its 300,000 employees.

* General Electric paid $950 million in 1988 for employee health coverage--17 percent more than in 1987. And GE expected its annual health care costs to rise by 20 to 25 percent for 1989, an annual jump of roughly $200 million.

* The problem may be more acute for small and medium-sized companies. In a recent page-one feature, The New York Times told the story of Mitchell Black, the owner of a small printing company with six employees in New Jersey. Black is losing sleep because he can't afford to pay $5,100 every three months for employee health insurance.

* According to some estimates, health benefits cost companies, on average, more than $2,700 per employee in 1989. This year, the cost of health benefits per employee is likely to go beyond $3,000.

* To make matters worse, the federal government clearly is committed to shifting more and more of the health care cost burden onto Corporate America's shoulders.

There are many reasons for the extraordinary increases in costs: new medical advancements in technology and treatment, an aging population that requires more care, and an overly litigious society that has caused care-providers to practice a defensive and exceedingly expensive type of medicine. Together, these factors add billions to our health care costs.

But regardless of the reasons, what I've described, in short, is every financial officer's nightmare: a large and rising overhead cost that can't be controlled or avoided.

Moreover, the threat posed by these soaring costs isn't simply to the stability and survival of individual companies. The threat is to our national prosperity. Last May, the National Association of Manufacturers declared that health benefit costs were "out of control." The Association warned that health care costs alone could threaten the nation's ability to compete in global markets; they could blunt the competitive edge that all of us are trying to achieve.

This litany of woes has caused employers to seek any cure, to try anything that will remove the problem from their balance sheets.

Some appear to have given up on the ability of the private sector to solve the problem. They've turned to what's being called nationalization, or a government-designed, government-sponsored, and government-run "solution" to the problem of who pays for health care. For some, the model may be the British system of government-dispensed health care. For others, it may be the Canadian system, under which doctors, hospitals, and other health care providers operate within a government budget.

Frankly, I'm not ready to cry "uncle," and I don't believe you or your CEOs are either. And, just as frankly, I believe that part of the agenda of those who have raised the issue is to push retiree health care costs off their books and onto the public budget. But, aside from the few businesspeople whose well-publicized comments about the health care system you've undoubtedly heard, most of the business community continues to believe a national health plan is not the answer. Here's why.

What's wrong with a

national health plan?

First, nationalization might give the uninsured access to health care, but the issue of access is separate from and has no positive effect on controlling costs. Adopting a system of national health care would simply shift the expense of the health care system to the public sector without attacking the factors that increase cost. The shift would add to the nation's tax burden and, ultimately, the already unwieldy federal debt.

Second, we might find ourselves buying another considerable crisis beyond mere cost: a massive erosion of the quality and timeliness of care. In effect, we may trade an access problem for accessibility concerns, such as those faced in the United Kingdom and Canada, where people sometimes have to wait months for surgery or are disqualified altogether from certain treatments.

Surely, if recent history, both home and abroad, has taught us anything at all, it is that large, bureaucratically organized, centrally planned solutions to economic problems do not work very well. Systems that emphasize free choice, competition, multiple centers of decision, checks and balances--in other words, free-market systems--are those that work best. What an irony it would be for the United States to move to a centralized solution at precisely the moment when much of the world is rejecting such systems as Utopian mistakes.

I believe, and I think many of you share my view, that the proper response to the health care crisis, especially for Corporate America, is to look for solutions that address the core problem of cost. At the same time, we must preserve the best features of our system: the consumer choice and competition I just mentioned, plus efficient, hands-on management and dedication to a high quality of service.

And I believe there is such a solution available today. It's a solution already tested and working in the marketplace. It began as the HMO movement and has evolved into a more effective phase called integrated managed health care.

The alternative

Many companies already have introduced some form of managed care to their employees. Generally, these programs have been only modestly effective, largely because they have addressed only a small part of the cost-escalation problem. The managed care system of the '90s will move well beyond what we see today. At the core will be a contracted arrangement with a network of providers who agree to meet predetermined standards of quality and cost-efficient practice. The primary-care physician will manage the care, and an educational program will exist to improve provider performance. In short, I see a series of provider networks that will compete for patients on the basis of both quality and cost effectiveness.

Americans want the freedom to choose what they perceive as "the best," and the new managed care system allows that choice. The individual is free to use non-network providers, but then the individual--not the employer--will be asked to pay for that choice. We call this "point-of-service" choice, and it essentially integrates managed care and fee-for-service medicine to give the consumer the best of both worlds.

For the employer, integrated managed health care can restrain health care inflation. It can provide a way to measure and evaluate what the firm is getting for its health care dollar. And it's simple. It lets firms deal with a single managed health care company that arranges coverage for the client across the board.

Integrated managed care works because it has medical professionals who can allocate resources and treatment wisely, build relationships with employees and their families, understand their needs, and then shape their medical treatment. This relationship lets employers better manage past misuse or overuse of the health care system. Care is managed, for example, to ensure that physicians don't do what a nurse should do or specialists don't do what a primary-care physician could do.

All of this activity is designed to create an educated health care consumer who will work with a medical professional in the decision-making process.

A key reason why our health care system is in crisis is that American consumers currently expect quality treatment at any price, free of any worry about who will ultimately pay--not unlike a nationalized delivery system. Any one of us would be reasonably worry-free about spending other people's money. Or, to put it another way, what kind of car would you buy if someone else paid for it?

My point is that Americans need to be just as careful about spending their own and their employer's health care dollars as they are about spending their own money on other consumer goods and services. While we're a long way from convincing every consumer that better-for-less medical treatment is a critically important national goal, we simply cannot afford the current escalating cost.

The corporate end

I know that today's managed care system isn't perfect. But CIGNA and other managed care companies are working to create a partnership with physicians, hospitals, and outpatient treatment centers. We're working to simplify a health care system that is slowly moving toward the next century. We're working to help corporations create employee awareness and concern by designing sensible and efficient integrated managed care programs.

Only you, the business leaders, however, can determine the pace at which you move toward controlling costs. Today, you can select from a continuum of managed care options, each with successively more comprehensive cost controls. Given employee relations concerns, not every company is going to--or can--reach the highest level of integrated managed health care immediately. It may be more evolutionary or generational. At CIGNA, for example, we haven't forced changes; we've given our employees choices between indemnity and open HMOs. Today, nearly 55 percent have chosen the HMO option.

But, sooner or later, I believe that most large companies will initiate some form of integrated managed care, simply because it works. The trend already is well underway. At the start of this decade, 95 percent of insured medical care was provided in the form of traditional, unmanaged fee-for-service care. By 1988, however, only 28 percent of insured care was provided in this traditional form. The corporate market is moving massively in the direction of managed care.

As one example, not long ago CIGNA entered into an agreement with Allied-Signal Corporation to create what it calls "The Health Care Connection," a comprehensive, flexible, across-the-board employee health care plan. Eventually, the plan will service nearly all Allied employees.

Allied-Signal faced an enormous problem. In 1987, it paid out $355 million for employee health care. And its best estimates projected a burden of health care spending of $663 million for 1990.

Under the Allied plan, employees and their families needing care, including preventive care, have a flexible range of choices. They can call on a managed care physician from an HMO or select a physician outside the network. Going outside the network involves some greater out-of-pocket expense for the patient through co-payments and deductibles. According to our most recent figures, 75 percent of Allied-Signal employees covered by the CIGNA program choose managed care treatment. And, just as important, those who use the network of physicians and hospitals do so 95 percent of the time. That says something about employee satisfaction.

Allied now has some assurance that it can predict its health care outlays without sacrificing the quality of care. And managed care is the concept that makes that assurance possible.

Is it working? Absolutely. Allied-Signal's health care expenses are down 20 percent, and management believes the program will permit the company to save more than $200 million during the next three years.

Leading the debate

It's true, managed care is no panacea. But it is, as I have said, a solution--one that works, on balance, impressively well. It is a solution that preserves the best features of private, free-market problem-solving.

I'm not going to try to predict the future of our national health care system. I do believe, however, that we are moving into a phase of intense innovation and potential positive change. Crisis has forced us in that direction.

But, while we are moving, Corporate America needs to join this debate in force, if we hope to solve this national problem in a way that preserves the quality of service. The private sector needs to lead the debate, not sit on the sidelines. After all, we are the problem-solving sector of our society. We are the sector that knows how to get results, at the best price, most efficiently, and with the most freedom.

William H. Sharkey Senior Vice President of National Marketing CIGNA Employee Benefits Companies
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Author:Sharkey, William H.
Publication:Financial Executive
Date:Mar 1, 1990
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